A new plan to replace Obamacare

Avik Roy of the Manhattan Institute has been one of Obamacare’s most prominent critics over the past several years. On Wednesday he released his new plan – The Universal Exchange Plan – to replace Obamacare. He has been advocating for this plan in general terms for some time, and it could prove to represent the most realistic path for future reform if the politics of the issue does not play in favor of Republicans. The plan does not actually require the full repeal of Obamacare in order to work.

What Roy is presenting here is a recipe for reform even in a situation where Obamacare’s structure endures. But it does not accept Obamacare’s permanence; instead, Roy is outlining a plan that dramatically shifts Obamacare’s effects; eliminates the individual and employer mandates; essentially transforms the Medicaid expansion in favor of private coverage; repeals all but the Cadillac Tax of Obamacare; and shifts power and authority to the states.The full plan is here, and here are its five major points:

Exchange reform. The Plan repeals the ACA’s individual mandate requiring most Americans to purchase government-certified health coverage. The Plan restores the primacy of state-based exchanges and state-based insurance regulation. It expands the flexibility of insurers to design exchange-based policies that are more attractive to consumers, because they are of higher quality at a lower cost. The Plan expands access to health savings accounts. Because these reforms lower the cost of insurance for younger and healthier individuals, they have the potential to expand coverage, despite the lack of an individual mandate.

Employer-sponsored insurance reform. The Plan repeals the ACA’s employer mandate, thereby offering employers a wider range of options for subsidizing workers’ coverage. The Plan preserves the ACA’s “Cadillac tax” on high-cost health plans, but it repeals other taxes, and reforms other regulations that artificially drive up the cost of employer- based insurance.

Medicaid reform. The Plan migrates the Medicaid acute-care population onto the reformed state-based exchanges, with 100 percent federal funding and state oversight. (Medicaid acute care is a form of conventional insurance for hospital and doctor services.) In exchange, the Plan returns to the states, over time, full financial responsibility for the Medicaid long-term care population. (Long-term care funds nursing home stays and home health visits for the elderly and disabled.) This clean division of responsibilities will improve coverage for the poor; reduce waste, fraud and abuse; and provide fiscal certainty to state governments.

Medicare reform. The Plan gradually raises the Medicare eligibility age by four months each year. The end result is to preserve Medicare for current retirees, and to maintain future retirees – in the early years of their retirement – on their exchange-based or employer-sponsored health plans. (Today, the government does not allow the newly retired to remain on their old plans; instead, it forces them to enroll in Medicare or forfeit their Social Security benefits.) In total, these changes would make the Medicare Trust Fund permanently solvent.

Other reforms. The Plan tackles the growing problem of hospital monopolies that take advantage of their market power to charge unsustainably high prices. The Plan reforms malpractice litigation in federal programs. And it accelerates the pace of medical innovation through reform of the Food and Drug Administration.

Based on our modeling, the plan, over a thirty-year period, reduces federal spending by $10.5 trillion and federal revenue by $2.5 trillion, for a net deficit reduction of $8 trillion. We project that it will expand coverage by more than 12 million individuals over its first decade, despite the fact that it repeals the individual mandate. It reduces the cost of private-sector insurance policies by 17 percent for single policies and 4 percent for family policies.

But the most dramatic improvement, we estimate, is in the Medicaid population. A group that today receives substandard care and substandard access to care will see a dramatic increase in provider access and health outcomes, based on Parente-developed indices that measure these things.

Should Republicans face divided government in 2016 or should Obamacare’s polling numbers rebound, this approach could be the one they deploy to achieve long-lasting reform. Indeed, I’m curious if Roy has broken down how much of his proposal would need to be done legislatively.

One of the key points here is that Roy is essentially betting that no realistic reform can be achieved if it shrinks coverage for Americans who gained it under Obamacare. He is also assuming passage of this reform would therefore be easier than a reform that fully repealed Obamacare and did not instead try to turn Obamacare’s mechanisms against the entitlement state. This may not be the case: It may turn out to be just as hard as replacing Obamacare fully.

One final note: One of the most interesting parts of Roy’s reform, and the one people should pay attention to given its unique nature, is Section 5, focused on the cost of health care and health insurance and particularly the role of hospital consolidation. Cost was always the priority for most Americans prior to reform and polling evidence suggests it remains their top priority going forward. Rather than talking about the fiscal impact of Obamacare or its problems in aggregate, conservatives and libertarians would be wise to focus on reforms targeted at bringing down the cost of care and of coverage, and breaking the hospital oligopoly that drives up prices for everyone.